Measures implemented by governments in relation to the collection of revenue and public expenditure are commonly referred to as fiscal policies. These policy measures can normally be categorized as either expansionary or contractionary and some politicians tend to favor one of these approaches regardless of the state of the economy. While political idealogues debate the merits of different policy types, other people are more concerned with discussing the advantages and disadvantages of even having fiscal policies.

Uniformity

Governments need to raise capital to cover both short-term and long-term debt obligations. Typically, governments generate capital by imposing taxes. Contractionary policies are designed to reduce public debt in which case tax rates may increase while public expenditure decreases. Expansionary policies are designed to drive economic growth in which case governments cut taxes so investors and individuals have more capital to spend. Politicians can use fiscal policies to steer the economy away from dangers such as looming recessions or rising inflation. Critics of fiscal policy argue that nature should run its course and that fiscal policies only delay the inevitable when economies are in a downward spiral. Additionally, some people even argue that high taxes and excessive spending are anti-capitalist since the policy makers are taking control of the free market economy.

Ideology

Government entities can reassess fiscal policies on a regular basis and raise or reduce taxes and spending whenever necessary. However, many people vote for politicians whose ideological beliefs cause them to promote certain types of policies such as increased government spending or the elimination of certain tax cuts. Therefore, the advantages of fiscal policies in democratic nations include the fact that the electorate can indirectly control policy decisions by choosing politicians based upon their economic ideologies. Freedom of choice can also prove problematic because dissatisfied voters can easily replace politicians whose fiscal plans have yielded unpopular results. In some democratic nations, political parties seldom have long enough to enact such policies before election results lead to a party with an opposing viewpoint coming into power.

Moral Hazard

In some political bodies such as the European union, politicians do not have the ability to make wholesale fiscal policy decisions but they can at least set limits on national spending and tax policies. During economic downturns, this means political leaders from various nations can cooperate with one another fairly easily because all of them are operating under the same constraints. However, in the economic sphere tight regulations drive some people to bend the rules or even to commit fraud; analysts refer to this danger as moral hazard. People who are unable to meet certain deficit reduction targets may falsify the records to save their own jobs. In the absence of fiscal policies, such individuals may act more honestly since they do not have onerous targets to meet.

Considerations

While proponents and opponents of fiscal policies will argue the merits and disadvantages of such actions, economic conditions are impacted by many other factors that governments do not control. Stock market investors can drive economic growth simply by buying shares in expanding firms. Many nations including the United States and Great Britain have unelected policy makers working for the nation's banks and these non-partisan officials have the ability to control the nation's money supply even if they have no influence on fiscal policy. Therefore, while fiscal policy makers are influential, many other people have almost as much impact on the economy.